The performance of a blended real estate portfolio for UK DC investors

2018

JPIF

Purpose German real estate investment trusts (REITs) are a small but important property investment vehicle in the European REIT landscape, offering German commercial property investment exposure in a liquid format, compared to the more property development-focused German listed property companies and the popular German open-ended property funds. The purpose of this paper is to assess the emergence of the German REIT market and the risk-adjusted performance and portfolio diversification benefits of German REITs in a mixed-asset portfolio over 2007-2015. The post-global financial crisis (GFC) recovery of German REITs is highlighted. Enabling strategies for the ongoing development of the German REIT market are also identified. Design/methodology/approach Using monthly total returns, the risk-adjusted performance and portfolio diversification benefits of German REITs over 2007-2015 are assessed. Efficient frontier and asset allocation diagrams are used to assess the role of German REITs (and German property companies) in a mixed-asset portfolio. Sub-period analysis is used to assess the post-GFC recovery of German REITs. Findings German REITs delivered lesser risk-adjusted returns compared to German stocks over 2007-2015, with limited portfolio diversification benefits. However, since the GFC, German REITs have delivered strong risk-adjusted returns, but with continued limited portfolio diversification benefits with German stocks. German REITs also out-performed German property companies. Importantly, this sees German REITs as strongly contributing to the German mixed-asset portfolio across the portfolio risk spectrum in the post-GFC environment. Practical implications German REITs are a small but important market at a local, European and global REIT level. The results highlight the major role of German REITs in a German mixed-asset portfolio in the post-GFC context. The strong risk-adjusted performance of German REITs compared to German stocks sees German REITs contributing to the mixed-asset portfolio across the portfolio risk spectrum. This is particularly important, as many investors (e.g. small pension funds) use German REITs (and German listed property companies) to obtain their German property exposure in a liquid format, as well as the increased importance of blended property portfolios of listed property and direct property. Originality/value This paper is the first published empirical research analysis of the risk-adjusted performance of German REITs, and the role of German REITs as a listed property vehicle in a mixed-asset portfolio. This research enables empirically validated, more informed and practical property investment decision making regarding the strategic role of German REITs in a portfolio.

Section: Property Investment Implications For German Reitsmentioning

confidence: 99%

The emergence and performance of German REITs

2018

JPIF

“…The common consensus in these studies is clear; the accelerating growth of REITs in these jurisdictions since the aftermath of the GFC resulted in strong returns being delivered to investors and provided a discernible mixed-asset portfolio performance uplift. Listed property is also credited for providing liquidity when included as part of a blended portfolio with private property and in most cases, its inclusion resulted in an improved performance (see Ametefe et al, 2019;Farrelly and Moss, 2014;Moss and Farrelly, 2015). At the regional front, much of the attention in the literature is aimed towards understanding the pan-European listed property market investment dynamics across a diverse range of themes, such as on the IPO performance (Ascherl and Schaefers, 2018), inflation hedging ability , liquidity issues (Moss and Lux, 2014;Niskanen and Falkenbach, 2012a), capital structure (Morri and Artegiani, 2015;Niskanen and Falkenbach, 2012b), implementation of leverage (Morri and Jostov, 2018), market volatility (Begiazi and Asteriou, 2016), futures contracts , amongst many other themes.…”

Section: Introductionmentioning

confidence: 99%

The evolution of Belgium REITs

2019

JPIF

Purpose The Belgium Real Estate Investment Trust (REIT) market was created primarily to facilitate a transparent, professionally managed and fiscally efficient market, providing access to the European property markets. Being the 2nd oldest REIT market in Europe, it has undergone many evolutionary changes over the years that add to its considerable stature as a sophisticated investment opportunity. This includes an increased recent focus on the social infrastructure property sectors such as healthcare, care facilities and nursing homes, consistent with the evolving investment mandates requiring stronger integration of environmental, social and governance (ESG) aspects in the investment strategy formulation. The purpose of this paper is to highlight the strategic transformation of Belgium REITs and empirically assess their performance attributes over 1995–2018. Sub-period performance dynamics of Belgium REITs in the pre-global financial crises (GFC) (1995–2007) and post-GFC (2009–2018) contexts are provided. Design/methodology/approach In total, 23-year monthly total returns over 1995–2018 were used to analyse the risk-adjusted performance and portfolio diversification potential of Belgium REITs. The traditional mean-variance portfolio optimisation model using the ex-post returns, risk and correlation coefficient of Belgium REITs and other financial assets was developed to determine the added-value benefits of Belgium REITs in a diversified investment framework. The analysis was further extended to cover the sub-periods of pre-GFC (1995–2007) and post-GFC (2009–2018). Findings The results of the analysis provide a strong investment case for Belgium REITs, as they are able to deliver a discernible premium in the total return performance, superior risk-adjusted returns and strong diversification benefits with the stock market in a long-term investment horizon. Broadly consistent results are similarly observed in the sub-period analysis over varying market conditions. Importantly, the role of Belgium REITs in a diversified investment framework was also empirically validated, as they enhanced the mixed-asset portfolio performance comprised of the traditional asset classes of stocks and bonds across a broad portfolio risk-return spectrum. Dividend yield was also found to be a key component of the financial performance of Belgium REITs. Practical implications The Belgium REIT market has evolved to become the 5th largest market in Europe by the capitalisation volume. This is mainly due to the robust regulatory support and innovations since its debut which have resulted in a polished framework that is both supportive and attractive to financial players and investors. The broad direct consequence of this paper is to highlight the performance attributes of Belgium REITs, adding clarity to the ongoing discussion regarding the viability of European REITs as a liquid and tax transparent route for institutional investors to obtain their property exposure. The strong dividend yield and ESG/social infrastructure focus of Belgium REITs sees Belgium REITs well-placed going forward to meet the evolving investment mandates from major investors. Originality/value This paper is the first empirical investigation that elucidates the risk-adjusted performance and role of Belgium REITs as an important property investment opportunity. It equips investors and practitioners with an independent and comprehensive empirical validation of the strategic role of Belgium REITs in a portfolio. Well-informed and practical property investment decision making regarding the use of Belgium REITs for access to the property asset class is the main outcome of this paper.

“…As well as the considerable scope of including UK REITs in global REIT funds, this is further reinforced with the increased use of UK defined contribution (DC) pension schemes and their need for property exposure in a liquid format (Farrelly and Moss, 2014;Moss and Farrelly, 2015).…”

Section: Introductionmentioning

confidence: 99%

The significance and performance of UK-REITs in a mixed-asset portfolio

2016

JERER

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